UBS to launch new Asian crossing platform

UBS is adding a secondary pool to its Price Improvement Network in Asia-Pacific so that institutional clients can choose what kind of flow they want to interact with in its internal crossing platforms.

As finding liquidity has become more
of a challenge over the last year, UBS is adding a secondary pool to its Price
Improvement Network (PIN) in the Asia-Pacific region so that institutional
clients can choose what kind of flow they want to interact with in its internal
crossing platforms.

The secondary pool will function in
a similar way to UBS ATS in the US, launched in 2008, and UBS MTF in Europe,
launched in November 2010.

The exact date of the launch, and the name of the new Asia-Pacific
venue, has not yet been announced, but it will initially access the Australian
Securities Exchange and Hong Kong’s HKEx, as well as the Tokyo Stock Exchange,
Osaka Securities Exchange and JASDAQ in Japan, where the UBS PIN network is
already operating. UBS also has plans to expand its access in the future to
other exchanges in Asia-Pacific that allow internal crossing.

“UBS has a very clear cut model in terms of like-minded, high quality
agency flow that’s kept within UBS PIN. We don’t even have our own internal
prop desk in there,” said Rebecca Thomas, senior sales for UBS APAC
Direct Execution. “Then there are the secondary pools – ATS in the US and MTS
in Europe – which are like what we are building for the APAC region here. That
adds more choice for the client and also protects them.”

Client protection over
crossing rates

UBS, with its large long-only institutional client base, has taken the
view that protecting those clients is more important than improving crossing rates
at all costs by allowing everyone access to its PIN pool.

“If you’re a large fund manager and you have a very large order to get
done, the biggest concern is leakage, and so you care who you interact with,”
said Sanji Shivalingam, head of algo and analytics at UBS for APAC. “In
dark pools, you can get picked off.”

“Now they will have the choice of just being with very like-minded flow
in our internal pool, or interacting with other types of flow: brokers,
high-frequency or aggregating services, in the secondary pool,” added Thomas.

UBS’ clients are largely supportive of its approach of keeping the
institutional flow separate, according to Thomas. “And while some are
frustrated in some respects that they can’t reach us now via the aggregators,
they do understand the philosophy. I think going forward you may see a reversal
from some of our peers in terms of how their pools are structured.”

Something for everyone

Separating the flow into two venues
will also make it easier for UBS to control the kinds of trading activity that
occurs, according to Shivalingam.

“Some large clients don’t mind if they interact with different kinds of
flow, and we need to give them the opportunity to do that. Other clients are
very hesitant to interact with some kinds of flow,” said Shivalingam. “The
problem is, if you put everyone in the same pool, it becomes a really hard
game: how do you define predatory behaviour, how do you manage and police that.
It becomes a full-time job in its own right.”

Once the new venue is established, UBS will look at reciprocal flow with
other brokers, as well as at issues such as gaming and pinging.

“For the secondary pool, we will have internal anti-gaming
logic and it will be stock-specific, not an arbitrary number for minimum order
sizes,” explained Shivalingam.